No. of Recommendations: 26
Well, I see some sand has been thrown into the gears of international trade. Living in Europe as I do, it's the transatlantic trade routes that are of particular interest.
My main wonderment is whether anyone at the US government knows that the US has no trade deficit with Europe? The trade has been very closed to balanced for many years.
A much more subtle question is whether anyone there knows that bilateral capital account surpluses (trade deficits) are meaningless, as it's only the aggregate balance of a country that matters? i.e., the sum of all positive and negative accounts across all trading partners.
Imagine the US sells machine tools and licenses for a chip design to Taiwan (in return for money), they make chips and send them to China (in return for money), China assembles an electronic widget and sends it to the US (in return for money). It's entirely possible for the net trade sum for all three countries to be balanced (no country has any current account surplus or deficit, no trade surplus or deficit), but all three bilateral relationships to be "unbalanced". There is nothing wrong or unsustainable about this, and in fact all three countries are probably much better off for the trade having taken place. If one of those three insists on balancing its bilateral trade with one or both of the other two, all three are poorer.
Some people think a trade deficit of $1 is a loss of $1 and simply can't be persuaded otherwise, forgetting that you do get stuff in return (duh). And usually more than the amount of the same stuff you'd get for $1 bought from somewhere else or made locally, so it's usually a net value gain for the importing country. That isn't to say that there aren't other smaller effects both benign and unfortunate, but it certainly isn't a loss of $1 for the importing country.
Jim
